Home values fall at the fastest pace in 40 years: what it means for property-backed lending

Cotality's latest figures show Australia's housing downturn is deepening. This article explains what the data shows and what it means for security values, LVRs and exits that depend on a sale.

What Cotality reported

National home values fell 1.2% in October, the seventh consecutive monthly fall, leaving them 6.7% below the March peak. Cotality described the pace of the decline as the fastest in 40 years.

Brisbane and Perth led the falls among the capitals, with Brisbane down 2.0% and Perth down 1.7%. Sydney fell 1.6%. Hobart and Darwin were the exceptions and rose.

Source: Cotality Home Value Index, October 2026, released 2 November 2026.

The national median home value is now $884,855. Cotality expects conditions to remain subdued through the rest of 2026 and into 2027.

Why it keeps falling

Higher interest rates, stretched affordability and cost-of-living pressure have cut demand, as covered in our earlier piece, House prices have fallen in every capital. With the RBA now at 4.85% and forecasting inflation to stay elevated through 2027, those pressures aren't easing yet. See Rates hit 4.85%.

Different indices measure the downturn differently, so figures vary between providers. The direction, though, is consistent.

What it means for property-backed lending

1. Security values are moving

Every fall in value lifts the LVR on an existing loan. An illustrative example: a $3 million property with a $2 million loan sits at 66.7% LVR. If the value falls 7% to $2.79 million, the same loan is at 71.7%. The example is illustrative only and does not represent any lender's criteria.

2. Refinancing gets harder

Valuers are cautious in a falling market, so a refinance or equity release may produce less than expected. See Why your valuation came in low.

3. Exits that depend on a sale are riskier

If your plan to repay a loan relies on selling a property, expect longer selling periods and prices below earlier expectations. See Sell first or buy first?.

4. Development feasibilities need updating

Falling end values and slower presales squeeze margins. See Presales are getting harder.

Who is most exposed?

• Borrowers with high LVRs on properties bought near the peak.
• Properties in the cities with the sharpest falls, including Brisbane and Perth.
• Short-term facilities, such as bridging and construction loans, that rely on a sale or valuation by a set date.

Practical steps

• Check your current LVR against realistic, lower values, not the price you paid.
• Plan your exits conservatively. Assume lower prices and longer selling times.
• Talk to your lender or broker early if a facility is approaching expiry or a covenant review.
• Keep a cash buffer for top-ups, interest and holding costs.

For brokers

• Use conservative valuation assumptions when structuring new scenarios.
• Review existing clients with high-LVR or short-term facilities.
• Discuss alternative structures, such as additional security, a second mortgage or bridging, before a problem arises. See First mortgage vs second mortgage.

The Funding Door view

Nobody knows exactly where values will bottom. What borrowers can control is how much room they have if values fall further. Structures with conservative LVRs, realistic exits and a buffer for delays are the ones that hold up.